Thank you, Mr. Chairman.
I'd also like to thank the committee for the opportunity to appear here this morning.
In my opening remarks, I will briefly provide some context for the issue of income inequality and comment on some measurements.
The first point of context is that income inequality is a natural result of free markets that price goods, services, and capital according to supply and demand accounting for risk. Redistribution of income through taxes, transfers, and subsidies is the way in which governments act to reduce income inequality. Note, however, that redistribution mechanisms can have negative effects on the economy—for example, where high levels of taxation on business or skilled labour are used. Redistribution funded by government borrowing can also cause issues in terms of inequities between generations.
The second point of context is that income inequality is inherently a relative concept, and measures of it in a given population show only relative relationships. For example, a rich country producing a large, absolute amount of income could have a higher level of income inequality than a poor country producing a small amount of income, yet a sizable proportion of the persons living in the poor country would improve their economic welfare by living instead in the rich country.
The third point of context is that the determination of a correct or appropriate level of income distribution as a goal in itself is based on normative judgment derived from an ethical or a political framework. For example, at the political extremes, certain forms of socialism have a goal of absolute economic equality, while certain forms of libertarianism will consider very high levels of inequality as appropriate. Typically developed economies with free markets accept a position in between these extremes.
Though statistical or economic analysis cannot determine a correct level of income distribution, it can assist in measuring income inequality. These measurements of income inequality in a population can be used to benchmark inequality and redistribution against both historical and international comparisons.
Gini coefficients are a commonly used measure of income inequality in a population. A Gini is a measure of statistical dispersion, that is, the unevenness of a variable over a population, with a Gini coefficient of one representing complete unevenness—that is, inequality—and a Gini coefficient of zero representing complete evenness—that is, complete equality. Gini coefficients in between obviously represent intermediate amounts.
Now I'd like to refer to two figures that I think can be found in the materials that were handed out to members ahead of time.
This is a chart that shows the Gini coefficients for income distribution in Canada for all families from 1976 to 2010. The data is from Statistics Canada. The blue line shows the inequality measured by Gini coefficients pre-tax and transfer, that is, before any redistribution. The red line shows the reduced inequality after taxes and transfers are taken into account, which in effect shows the amount of distribution.
My figure 2, which I'm not going to put up at the moment, because I would use the rest of my time trying to get these two computers to do it—I'll put it up immediately after—just shows the difference between those two lines over time.
Figure 1 indicates that post-tax and -transfer, income inequality in Canada that takes account of redistribution increased during the time period from 1976 to 2010 by about 8.5% in total, but with virtually no increase in the last 10 years measured.
Figure 2 will indicate that the scale of redistribution of income by government increased during the same period by about 27%. Although it did drop from its peak in 1994, the scale redistribution has been relatively stable for the last 10 years measured. Moreover, as measured by the OECD—and this is not on the slides—the Canadian post-tax and -transfer income inequality for the late 2000s of 0.324 is very close to the OECD average of 0.314, compared to, for example, that for the U.S., which is much higher at 0.378.
What are my public policy conclusions? In my view, these historical and OECD benchmark comparisons suggest that the Canadian system of income redistribution is working well, and there's no reason for public policy in Canada to target income inequality as a general issue. However, in order to maintain and improve equality of opportunity and living standards for Canadians, continuing attention should be paid to more precise targeting of existing and new policy initiatives using existing resources that can specifically assist lower-income Canadians. For example, consideration could be given to reducing the phase-out threshold for OAS, which is currently available unreduced up to $69,562, and not eliminating it completely until the person has an income of about $112,000 a year. Using these cost savings could increase the benefits to lower-income Canadians who require this more.
There are other examples, but I think I've probably used my time, so I'll stop.
Thank you for your attention, and I'll be prepared to take questions.